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RBA hints at future cuts

Caroline Smith

Australia's central bank has hinted at future interest rate cuts, while addressing the challenges faced by an economy in transition.

Reserve Bank of Australia (RBA) governor Glenn Stevens spoke to the Committee for Economic Development of Australia (CEDA) in Melbourne, on the same day that minutes from the bank's November 6 meeting had been released.

During his address, Mr Stevens reiterated that future changes to the cash rate had not been ruled out.

"The Board felt that further easing might be required over time," he said.

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"It was also conscious, though, that a significant easing of policy had already been put in place, the effects of which were still coming through and would be for a while.

"In addition, the latest inflation data, while not a major problem, were a bit on the high side, and the gloom internationally had lifted just a little. So it seemed prudent to sit still for the moment."

The RBA had previously cut the central interest rate in May, June and October to its current level of 3.25 per cent.

Speaking of longer-term trends, he said Australia's economy was in transition, as terms of trade fell from historic highs, and the resources sector moved into another stage.

"The terms of trade have peaked, and will probably have fallen by about 15 per cent by the end of this year," he said.

"So, while a high level of the terms of trade continues to add to the level of national income, we can no longer expect that a rising terms of trade will be adding to growth in living standards."

Talk of an end to the mining boom was "somewhat overhyped", he said.

"The boom is not so much ended as simply evolving, as these events would be expected to," he said.

"Thoughtful commentators have already pointed out on a number of occasions that there are three phases to the boom."

The second phase - of investment in mining projects - was likely to peak some time in 2013 or 2014, with the third phase of extraction and export of resources still to come, particularly with regard to gas projects.

"With the peak in the investment phase of the mining boom now coming into view, the question naturally arises as to how the balance between the various types of demand in the economy will unfold," he said.